ITIF: Zero Rating Plans Are Presumptively in Public Interest

Zero rating plans are a win-win-win proposition and the FCC should declare them to be in the public interest so long as they are nonexclusive.

That is according to a just-released paper from the Information Technology & Innovation Foundation, a nonprofit think tank whose board members include representatives of major computer companies and edge providers.

The FCC is currently studying zero ratings plans under its network neutrality general conduct standard, under which it takes a case-by-case approach to conduct that could adversely impact the internet. Those are plans where broadband carriers exclude some data—particularly high-bandwidth video—from data usage limits.

T-Mobile's Binge On, for example, zeros out video from Netflix and YouTube, some of the highest-bandwidth users, along with some 60 other services.

The paper, penned by Doug Brake, a telecom policy analyst at ITIF, concludes that the plans are, generally, a win for edge video providers who get more use of their products and services, a win for network operators, who are trying to gain market share via new models, and for consumers who "end up getting more for less.

"Brake does not say the FCC should not be regulating Zero rating policies, or insuring an Open Internet, just that it should presume those policies to be pro-competitive and pro innovation. He is OK with the FCC taking a case-by-case approach, but says it is tilting on the side of "suspicion," when Brake suggests it should be tilting in the other direction.

The FCC does take a rebuttable public interest presumption approach in other areas, notably its recent decision to presume that local market MVPD video competition is competitive unless proved otherwise on a case-by-case basis.

Initially, FCC Chairman Tom Wheeler suggested T-Mobile's Binge On zero rating plan was both innovative and competitive, as Brake points out (citing a report in B&C to that effect). But the FCC has since started investigating the plans, and recently voted to approve conditions on the Charter/Time Warner Cable merger preventing the usage-based pricing and data caps from which zero-rating plans are a carveout--as Brake points out, "Zero rating only makes sense in the context of usage-based pricing"--with Wheeler signaling that such policies, at least in the context of that transaction--would be "unfair barriers to video competition."

Instead, says Brake, "[g]iven the state of competition in the mobile market and the benefits consumers get from the practice (e.g., cheaper data plans), there should be a strong presumption that these practices are in the public interest."

Among the value-addeds for zero rating plans, says Brake, are increased innovation, expanding access to information in developing countries, a point Facebook has argued for its Free Basics program, and service differentiation.

Critics of the zero rating plans say they are opportunities for ISPs to favor some content over others either for pay via sponsored data plans--some services pay for the privilege of being zeroed out--or to favor their own co-owned content by zeroing it out.

Brake says the criticisms are overblown. He discounts the argument that zero rating is inherently discriminatory.

He concedes that the plans are in "tension" in a "strict sense" with network neutrality in that the data is treated differently than other data in a way that could influence consumer behavior, but says opposing them on those grounds is an "elitist" ideology that would prioritize precaution over experimentation and innovation.

"Dystopian theories of zero rating descending into walled gardens—where users chose to only partake in a narrow set of zero-rated offerings—are simply unrealistic," he says. He also argues that zero rating plans do not diminish the availability or quality of other services, leaving other applications "fully functional."

Brake is not suggesting the FCC exit the space entirely, only that it presume zero ratings plans to be beneficial unless proven otherwise. He concedes there is an outside chance for "ill-designed zero-rating programs" to "unfairly restrict competition in vertical markets, unduly magnify application lock-in, or otherwise unintentionally diminish the openness of the Internet."

He says an Internet open for innovation is worth protecting. "For these reasons, it makes sense for the government to retain oversight of these practices and authority to step in if consumer welfare is diminished," he said.

He says he still thinks the outside chance of bad outcomes is unlikely. "But expert agency oversight is still wise, in case of unexpected problems. And, of course, the case-by-case model has significant advantages in its flexibility to adapt to changing market practices."